U.S. Sen. Elizabeth Warren (D-MA) and U.S. Rep. Jesús “Chuy” García (D-IL) introduced a bill in Congress that would restrict consolidation in the banking industry.
Their bill, the Bank Merger Review Modernization Act, S. 2882/H.R. 5419, follows President Joe Biden’s recent executive orders that call for increased merger oversight.
“In recent years, our banking sector has become more and more dominated by the largest banks. Community banks are being gobbled up by larger competitors or forced to shut down because they can’t compete on a level playing field. This results in more concentration, higher costs for consumers, and increased systemic risk to our financial system. The bill Congressman García and I are reintroducing would ensure that regulators do their jobs by stopping mergers that deprive communities of the banking services they need and help prevent another financial crisis,” Warren said.
The lawmakers contend that the review process for bank mergers is broken, focusing on narrow measures of competitiveness and not broader impacts of the merger. Warren and Garcia also claimed the government is essentially a rubber stamp, saying that of the 3,819 bank merger applications the Fed received between 2006 and 2017, not one was declined.
This has led to a rapid decline in the number of banks, from over 12,000 in 1990 to less than 5,000 today. The lawmakers, citing studies, said bank mergers can result in higher costs to consumers and decreased access to financial products, particularly in low- and moderate-income communities.
“Bank consolidation means more pay and profits for big banks and fewer bank branches in neighborhoods like mine. It’s time for our government to stop rubber stamping bank mergers,” García said. “This bill ensures our regulators consider the impacts of a merger on consumers, workers, and our financial system.”
The Bank Merger Review Modernization Act seeks to strengthen the statutory framework under which bank and savings and loan holding company mergers are evaluated. Specifically, it clarifies and strengthens the public interest aspect of the merger review; requires Consumer Financial Protection Bureau approval when at least one applicant offers consumer financial products; allows institutions with the highest rating in two out of three of their last CRA exams to merge; and requires transparent disclosure of discussions between the institutions and regulators before the merger application is filed.
Further, it requires regulators to use a quantifiable metric developed by the Basel Committee on Banking Supervision to evaluate systemic risk; requires regulators to examine how the merger would impact market concentration for individual banking products; and requires regulators to review the leadership of the merged institution to ensure they have strong records on risk management. In addition, larger institutions would also have their balance sheets examined to ensure that they will be on solid financial footing.